Time Warner Cable is trying to unwind a $140 million judgment for patent infringement with a novel argument. Backed by amici curiae Intel Corp. and Dell, the company argues that a prior jury verdict involving the same patents should not have been admitted to prove damages at its trial.
Sprint obtained the Time Warner verdict last year in a Kansas trial over VoIP technology. Its damages evidence included two comparable licenses and Sprint’s 2007 verdict against Vonage over the same patents in which jurors awarded $1.37 per subscriber.
The Time Warner jury also awarded $1.37 per subscriber, generating the $140 million figure.
Kirkland & Ellis partner John O’Quinn argued Monday there was too much risk the jury would blindly follow the lead of its predecessors. The Vonage verdict was especially prejudicial, he argued, because it was based on the 25 percent “rule of thumb” for a reasonable royalty, a construct the Federal Circuit has since outlawed in Uniloc v. Microsoft.
“It’s not like the verdict came in to be used to test someone’s credibility or some entirely ancillary purpose,” O’Quinn told the court. “It was offered precisely for damages, the very issue on which the error occurred. Respectfully, this is a wolf in wolf’s clothing.”
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The issue clearly intrigued Federal Circuit Judges William Bryson and Raymond Chen, who peppered O’Quinn and opponent J. Michael Jakes, a partner at Finnegan, Henderson, Farabow, Garrett & Dunner, with questions throughout the 40-minute argument.
Damages in IP cases are based on hypothetical licensing negotiations between the parties before the damages period. Bryson pointed out that the hypothetical negotiation in Sprint v. Time Warner would have taken place in 2010, a year before Uniloc. “Why isn’t it perfectly permissible” then to rely on the Vonage verdict, he asked, “just as a data point that the parties would have been aware of?”
O’Quinn began by arguing that the hypothetical negotiation is “a legal fiction.”
“Right,” Bryson replied, “but we live with it.”
Hypothetical negotiations also exclude unreliable information, such as comparable licenses that are overly influenced by settlement considerations. The Vonage verdict falls in that category, O’Quinn argued.
Bryson also pointed to Applied Medical Resources v. U.S. Surgical, a Federal Circuit decision that approved the admission of a prior verdict. O’Quinn argued that the verdict was admitted in that case to prove willfulness, but Bryson disagreed, explaining he’d reviewed not only the opinion but the briefs that were filed in the 2006 case. “Hypothetical negotiation was a separate argument from willfulness, as I read the record in that case,” he said.
It wasn’t any easier for Sprint’s lawyer, Jakes. Bryson began by telling him it “seems to me almost bizarre” that the Vonage verdict played “such a central role” in the Time Warner case. Sprint’s comparable licenses put damages at 5 percent of Time Warner’s VoIP revenue—which would have been close to the $1.37 per subscriber figure. “I’m not sure why we ended up in this very strange circular maneuver” with the prior verdict, the judge said.
Jakes said Sprint had simply been “trying to translate this amount into something that had previously been the basis of the parties’ relationship, which was a per subscriber, per month cost.”
Chen said it was hard to believe that the $1.37 figure was “just a data point in the constellation of data points” on damages, when the jury’s verdict “just happened to be to the hundredth decimal point the exact same verdict as the Vonage jury.”
Jakes argued that the $1.37 figure was actually less than Sprint would have obtained under its comparable licenses. Plus, Sprint and Time Warner had discussed the Vonage verdict in their actual licensing negotiations, Jakes said. “That’s what normally happens,” he said. “They say ‘Look, here’s what we got in this prior case.’”
Bryson and Chen, however, didn’t sound completely sold. “I have to say, I find the idea of relatively free use of prior verdicts troubling,” Bryson said, noting a patentee would never be allowed to convene eight expert witnesses and present their valuation without cross examination. “Why is that fundamentally different from introducing the verdict of eight lay people at the end of the trial?”
Chen said he shared the concern that courts shouldn’t “admit jury verdicts left and right,” asking what the limiting principle would be.
“Is it comparable, and is it something that would be considered in a hypothetical negotiation,” Jakes replied. “And the answer to both of those is yes.”